The first step in financial planning is to determine your short term and long term financial goals. When you have a defined set of realistic goals set according to your financial needs, finding an investment plan that aligns with that goal can be very easy. So while choosing an investment plan, a person should look at his own financial needs instead of investing in schemes chosen by his friends or peers. Your financial goals may or may not align with those of your spouse, your siblings, your parents or your partners. The number of schemes available in the market for investment is beyond comparison. A lot of people aspire to be financially independent, but what they don’t realize is that they need to start with financial planning first.
The real problem is with those people who are not able to save a single paisa from their monthly income. This problem is ubiquitous among young earners. They save less and spend more, leaving them bankrupt at the end of every month. Because of this, they are neither able to save nor invest. In fact, most of these individuals turn to credit cards, which adds to their debt, reducing their chances of saving or investing. Such individuals should understand that money management is essential. They may be living with their parents and spending their money on luxuries, but they should understand the fact that because their parents have saved and invested, they are able to live a luxurious life. are capable of.
As hard working individuals, we love to be appreciated and rewarded with incentives. What if there was a way for you to increase your chances of being rewarded by making smart investments? Once you are good with money management and know exactly what you want to achieve, the next step is to determine your risk appetite. Risk appetite is nothing but the ability of an investor to take a certain amount of risk with his investments so that he may be able to get some capital appreciation in the long run through those investments. Each investment scheme has a different risk profile and hence, it is important for investors to know how much risk they are willing to take with their finances. As an investor, if you are inclined to invest in market linked schemes, there is a possibility of loss in your investment portfolio as well. This is the reason why individuals with zero risk appetite should try to invest in conservative schemes that offer fixed interest rates. The only problem with such schemes is that the interest rates they offer are generally lower than expected. Hence, the interest rate offered by such investment schemes may or may not be successful in helping an investor get closer to their short term or long term financial goals.
There are many factors that play a role in an investor’s risk appetite. For example, a young aggressive investor may have high risk appetite and invest in equity oriented schemes. On the other hand, someone who is nearing retirement may not want to invest his money in high-risk schemes. However, these are just examples and may or may not be in that order in every situation. To contradict the above example, someone who is nearing retirement but already has an established corpus may still want to invest his finances in a high-risk investment scheme. So readers should note that these are only assumptions which should not be considered as established claims. Several factors such as age, income, current liabilities, monthly expenses etc. play an important role in determining the risk appetite of an individual.
In recent times, mutual funds have become the choice of many Indian investors. Mutual funds provide investors with an opportunity to invest in multiple asset classes through a single investment. They (Mutual Funds) are also considered to have a diversified portfolio, thus balancing the risk in the long run.
If you want to know more about Mutual Funds, keep reading:
What are mutual funds?
A mutual fund is a pool of professionally managed funds, where the fund manager buys/sells securities as per the investment objective of the scheme. What fund houses / AMCs do is that they pool money from investors who share a mutual investment objective and invest this pool of money (known as mutual funds) on behalf of these investors in the Indian economy. Huh. The money is invested in multiple asset classes like equity, debt, call money, government securities, corporate bonds etc. depending on the nature of the scheme and the risk profile.
For example – A small cap fund should invest predominantly in stocks of companies with small market capitalisation.
The Securities and Exchange Board of India, the mutual fund regulator, has this to say about them – ‘
Mutual funds are a mechanism for pooling resources by issuing units to investors and investing the money in securities as per the objectives stated in the offer document.
Investing in securities is spread over a wide cross-section of industries and sectors and thus reduces risk. Diversification reduces risk because not all stocks can move in the same direction at the same time in the same proportion. Mutual funds issue units to investors according to the amount of money invested by them. Investors of mutual funds are known as unitholders.
The profit or loss is shared by the investors in proportion to their investment. Mutual funds generally come with a number of schemes with different investment objectives that are launched from time to time. Mutual funds are required to be registered with the Securities and Exchange Board of India (SEBI), which regulates the securities markets, before collecting money from the public.,
What is SIP and lumpsum investment?
People who want to invest in mutual funds usually have two mutual fund options – they can either invest in a lump sum or start a mutual fund.
sip
, Let us understand each of them in detail.
lump sum investment
Lump sum investment means paying the entire amount of your mutual fund investment in one go. When you invest in a lump sum, you usually make payments at the beginning of the investment cycle. The advantage of making a lump sum investment in mutual funds is that investors are allotted a larger number of mutual fund units as per the current NAV of the fund. As the fund grows and continues to make progress, the units you receive may increase in value.
Mutual Fund SIP
Systematic Investment Plan (SIP) is a systematic way of investing in Mutual Funds. The word SIP has become synonymous with Mutual Fund, so many people consider SIP and Mutual Fund to be the same. really
sip One way is to invest in mutual funds. With SIP, all you have to do is instruct your bank and every month on a fixed date, a pre-determined amount is debited from your savings account and transferred to your mutual fund. SIP is an easy and hassle free way and you can invest in mutual funds without personally visiting the fund house. If you are a KYC compliant person, you can also invest in mutual funds from the comfort of your laptop or smartphone.
Benefits of SIP
Compounding can benefit investors
Mutual funds are often considered long-term investments. Especially if you are investing in equity mutual funds, you are expected to stay invested for at least five to seven years. Also, if you continue investing in mutual funds through SIP over a long period of time, you can reap the benefits of the power of compounding.
SIP investment can help you beat inflation
It is true that mutual fund investment can help you achieve both short term and long term goals. However, many financial experts recommend investors to have a long-term investment horizon while investing in mutual funds such as equity funds. This is because when you continue to invest even in volatile market conditions, your investments can grow stronger in the long run and not only help you beat market volatility but also help you beat inflation can help.
SIP investment lets you get the benefit of Rupee Cost Averaging:
When you start a Mutual Fund SIP, you usually invest a fixed amount at regular intervals. Hence, when the markets are down and the NAV of the mutual fund is low, you may be allotted more units. Similarly when the markets are high, you are allotted a lesser number of units. This is known as rupee-cost averaging.
types of sip
The above investment approach for mutual funds was done through a traditional SIP. Apart from this, there are some other SIP investment options currently available in the market which mutual fund investors can consider investing in to increase their chances of wealth creation. They are mentioned below:
Top-up SIP
Some funds have an option to top up your initial SIP amount if the mutual fund you have invested in is performing well and you want to increase the amount paid at regular intervals. This type of SIP investment where you can gradually increase your monthly SIP amount is called Top Up SIP.
Sada SIP
Permanent SIPs do not come with an expiry date. Investors can continue investing in mutual funds through continuous SIP till they are able to achieve their financial goals. Permanent SIP does not have a renewal policy and one can continue investing as long as they wish. A permanent SIP generally targets the long-term financial goal of the mutual fund investor.
Trigger SIP
A trigger SIP is generally considered by experienced investors who have a good understanding of mutual fund investments and market volatility. Newbie investors who are still learning or too naïve to have a deep understanding of how mutual funds work should avoid this type of SIP investment.
Flexible SIP
There are some of us who have to deal with erratic cash flow. A flexible SIP helps such investors by giving them the freedom to increase or decrease the monthly investment amount based on their financial condition.
These were some of the ways in which you can continue investing in Mutual Funds. However, whether you want to invest in lumpsum or start a mutual fund SIP can entirely depend on your investment objective and your financial goal. For example, if you are investing in a tax saving scheme like ELSS at the last moment, you may need to make a lump sum investment to reduce your tax liability. However, if you wish to invest a small amount at regular intervals and gradually increase this amount based on the performance of the mutual fund scheme, you can opt for SIP instead.
No matter how you decide to invest, it is better to ensure that the investment objective of the scheme you are investing in aligns with yours. Also, investors are advised to do some primary research about the fund before investing. Check whether the fund has consistently performed well in the past. Also, check the fund’s expense ratio, fund size, risk profile, investment strategy, etc.
Lastly, if you are someone who is new to investing or does not understand the working of mutual funds, it is better to take some professional help before investing.
“This is an investor education and awareness initiative by Axis Mutual Fund. Investors need to complete a one-time KYC process. For more details visit www.axismf.com or contact us at [email protected]. Investors should only Should deal with registered Mutual Funds, details of which are available at www.sebi.gov.in – Intermediaries/Market Infrastructure Institutions section. For any grievance redressal, investors can call us at 1800 221 322 or write to us at customerservice@ axismf.com or register a complaint on SEBI Scores Portal https://scores.gov.in.
Mutual Fund investments are subject to market risks, read all scheme documents carefully.